On June 2, the GST Council fixed a GST rate of 3 per cent on silver, gold jewellery and processed diamonds, which is higher than the industry estimateKirtika Suneja | ET Bureau | June 05, 2017, 07:27 IST

NEW DELHI: The GST Council’s decision to impose a 3 per cent GST on gold will not only make jewellery costlier but also lead to a higher incidence of illegal gold trade, industry experts have said. They also said bringing the unorganised gold sector into the GST ambit will be a challenge.

“With GST, the total duty has become very high and the customs duty maybe revisited,” said Ajay Sahai, director general at Federation of Indian Export Organisations. “The duty could be one of the highest among major gold consuming countries, which could lead to high incidence of smuggling.”

India, China and West Asia are the world’s leading gold jewellery markets.

On June 2, the GST Council also fixed a GST rate of 3 per cent on silver, gold jewellery and processed diamonds, which is higher than the industry estimate. With an existing 10 per cent import duty, consumers will have to pay an effective duty of 13 per cent on gold jewellery, up from the earlier 12.5 per cent, which comprised 10 per cent import duty, 1 per cent value-added tax, 1 per cent excise duty and 0.5 per cent cess.

India exported gems and jewellery worth Rs 2.89 lakh crore in 2016-17, up 12.32 per cent from the previous year. “It is a positive compromise because there was a lot of hype created that gold rate could be much higher,” said Sanjeev Agarwal, CEO at Gitanjali Export Corporation. “However, the challenge is at the manufacturing end because 90 per cent of gold jewellery making is in the unorganised MSME sector.

Getting this 90 per cent base in the GST structure is a challenge,” added Agarwal, who is also the chairman of Ficci’s gems & jewellery committee. On the retail front, almost 30 per cent of the jewellery sector is organised. Calling the GST Council’s decision to impose a 0.25 per cent GST on rough diamonds a retrograde step, the Gems & Jewellery Export Promotion Council (GJEPC) said it will re-evaluate the viability of conducting the cutting and polishing activity in India due the thin margins in the segment.

“For a segment where 95 per cent of the output is exported and whose global footprint is under constant stress from other competitive economies, an upfront levy of GST on rough imports, which was hitherto exempted, would invariably cause a major setback to the trade and impact India’s significance in the global markets,” said Praveenshankar Pandya, chairman at GJEPC.

Another concern flagged by the jewellery sector is that material costs comprise 80-85 per cent of the ornaments and makers will get input credit only on the labour charges.